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LCCI praises Federal Budget 1999-2000

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Proposes more concessions, incentives for the business community

July 19 - 25, 1999

The Lahore Chamber of Commerce and Industry has appreciated the Federal Budget 1999-2000 and termed it a business and common man-friendly budget. The decisions, appreciated by the Chamber, are: Maximum rate of 35 per cent on personal income will not be applied on salaried persons for 1999-2000 assessment year, nor will the perks and income be merged for the purpose of tax for 1999-2000 assessment year. Maximum limit of tax rate for salaried persons will be 30 per cent. Under the PM Housing Scheme, bricks and cement blocks enjoy sales tax exemption and this concession is extended to commercial and other consumers. But, there is no ST exemption for concrete. The condition of one-third sales tax on gas, electricity and phone charges is being withdrawn in the hope that traders would not show reduced turnover. However, the Chamber feels that there are still some matters which need to be addressed by the government.


The rate of income tax has substantially been increased from 50 per cent to 58 per cent, 30 per cent to 35 per cent, 35 per cent to 43 per cent in case of banking, public and private limited companies respectively. In this regard if we analyze economic factor which had hampered the confidence of local as well as foreign investors, the top most is the inconsistency in our economic policies. The present government in 1997-98, accepting the long outstanding demand of the business community, reduced the income tax rates from 33 per cent to 30 per cent and from 45 per cent to 35 per cent for public and private limited companies respectively. This was no doubt a positive step in the right direction to encourage corporate sector and the revenue of the government was increased from Rs 88 billion to Rs 102 billion and to Rs 112 billion from 1996-97, 1997-98 and 1998-99 respectively. The Chamber is afraid that as the government revenue was increasing substantially over the years while again the government changing its hands has reverted back and enhanced the corporate tax rate thereby shattering the confidence of the business community on its policies. The Chamber has condemned this irrational increase in the taxation rate as it would lead to disintegration of companies and people would prefer to opt for informal sector than corporate sector. The Chamber has recommended to revise the rate to a uniform 30 per cent for public as well as private limited companies to encourage corporate sector.


In budget speech, the Finance Minister announced that in order to remove variation in appeal fee, the fees are being rationalized and fixed at Rs 1000 or 10 per cent of the tax which ever is less. However, in wealth tax appeals, this clause has not been implemented as it is proposed that appeal fee to Appellate Tribunal would be Rs 2,500 or 10 per cent of the tax, which ever is less. The Chamber is, therefore, of the view that the appeal fee to Appellate Tribunal be also reduced to Rs 1,000 from Rs 2,500.


Director Tax, Withholding, has been empowered to appoint a private agency, firm or a company under Sub-Section 4AAA, who shall have the power to enter the premises and inspect books of accounts and records of any person or classes of persons. The Chamber has condemned this clause as in its opinion insertion of such a harsh clause is against the spirit of presumptive tax regime and would provide an opportunity to the inspecting team to interfere in the affairs of the company. This would also lead to promote chartered accountants and consultants business. Therefore, this clause should be withdrawn.


Ever since the introduction of Presumptive Tax regime, vide Finance Act 1991, payments on account of services rendered were out of the preview of this regime. Through this amendment the scope of PTR has been extended to cover the payments on account of services rendered except those rendered by lawyers, accountants, auditors, architects, surveyors, actuaries, engineers, advisers and consultants. In Chambers opinion the deducted tax under this head would be considered full and final settlement while contrary to it other clauses subject to PTR, such as manufacturers or importers, are allowed to be taxed on the basis of PTR or on the basis of the sources of their operations. Therefore, in order to provide equal opportunities, the Chamber has suggested that service operators who are now subject to PTR be made entitled to exercise an option with regard to their basis of taxation.


Monitoring limit lowered for collection of tax at sources. Through this amendment the banks have been empowered to deduct advance tax at the rate of 0.2 per cent of the funds remitted through cheque or demand draft amounting to Rs 25,000 only instead of previous limit of Rs 50,000. This clause, in Chamber's opinion, would affect the business of small traders, therefore, needs to be waived off.


Withholding tax at the rate of 7.5 per cent has been proposed on rent of houses or properties as advance demand of income tax on a non-government charitable institution, a private educational institution, a hospital, clinic or a maternity home. This tax should be withdrawn as already 25 per cent property tax is being deducted on rental properties and this 7.5 per cent would lead to deduct tax at the rate of 32.5 per cent which is too high. This tax would discourage the people to give their properties on rent.


In order to promote the objectives of the Prime Minister's program for the revival of housing sector, mark-up on loans invested in the purchase of houses or apartments shall be entitled to an allowance in determining the income of such assessee under section 44B. The Chamber is of the opinion that same facilities should also be provided to those who had purchased houses/apartments before this policy announcement from loans.


All withholding tax collecting/deducting agencies/institutions are required to get themselves registered with Income Tax Department failing to which may lead to imposition of penalty. In Chamber's view this is another over documentation requirement as already all agencies are deducting tax and depositing in the exchequer. Therefore, there is no need to have registration.


Now an assessee, subject to PTR, shall be obliged to pay, with the return of income, an amount of tax determined by the difference between the tax and payable income, under the normal provision of the Ordinance, on declared, (Taxable income and the tax determined on imputed income under PTR). With the introduction of this new provision, the assessee has been divested of his right to choose his basis of income and now he is impelled to pay tax on the basis which

would yield higher amount of tax to the revenue. Moreover, this clause has been numbered wrongly since sub-section 6 already exists. The Chamber has recommended to withdraw this clause as it deprives the assessee to choose his basis of income.


The scope of minimum tax was originally restricted through Finance Act, 1991 to companies and in the later year registered firms were also brought within its ambit. Through this amendment, the scope of minimum tax has been extended to individual, Association of Persons, Unregistered Firms and Hindu undivided family (HUF) which does not qualify under universal self assessment scheme, at the rate of 0.5 per cent of turnover if no tax is payable by such assessee. The income tax is collected on income and in any case if a person is in loss, he should not be liable to tax even at the rate of 0.5 per cent of his turnover. Therefore, this amendment should be withdrawn.


If a person fails to deduct or collect or having deducted or collected the tax, as the case may be under section 50, the issue of jurisdiction over the assessee in default invariably arises. In such a case the common approach of Tax Authority was that Assessing Officer of the tax payer holds jurisdiction to execute proceedings on such tax payer being assessee in default. But in a proceeding of the court, Sindh High Court has given the verdict that the assessing officer of the tax payer has no jurisdiction to proceed against the tax payer on account of being assessee in default and instead it is the assessing officer of the recipient where lies the court jurisdiction. Through incorporation, an explanation in Section 52, the bill proposes to upheld the legal position, empowering Deputy Commissioner of Income Tax to invoke proceedings against tax payer as an assessee in default with retrospective effect. The Chamber is of the opinion that none of the provision be made in the law with retrospective effect, therefore, this clause should be withdrawn.


The authorized dealers have been empowered through incorporation of this clause for deduction of 10 per cent of the foreign exchange proceeds of an indenting commission as withholding tax at the time of realization of foreign exchange. The Chamber is of the opinion that as indenting agents are earning foreign exchange, therefore, they should be granted the status of an exporter exempting the restriction of deducting withholding tax at the rate of 10 per cent. The Chamber feels that rate should be brought down to about 1 per cent. Moreover, Traders/Dealers of Pakistan Steel are also indentors of Pakistan Steel and are paid commission by Pakistan Steel whereas 10 per cent of the income tax is already deducted at source out of their commission paid by Pakistan Steel. Therefore, as proposed in the current Finance Bill the Trader Dealers of Pakistan Steel may kindly be treated as Indentors and be allowed to submit their annual tax return under Section 143-B.